Portfolio Holdings Summary as at 31 October 2017

What does it do?

Ansell designs, develops, manufacturers and markets a wide range of hand and arm protection solutions for use in various industrial and manufacturing activities and in healthcare. It is essentially an industrial materials business that transforms natural rubber latex and synthetic latex into these value added products. It is a leading player (#1 or #2) in all its key market segments.

Why do we own it?

Ansell has an attractive combination of businesses that benefit when the world economy grows, and those that enjoy relatively resilient demand even when economies are weak. We expect the company’s earnings to grow over time as developed economies recover from the GFC, as better occupational safety standards are adopted in emerging markets and as it successfully differentiates its products from the commodity-end of the markets it serves through both branding and product innovation.

What does it do?

APN Outdoor is a leading Out of Home advertising company with a dominant share in the Roadside and Transit sectors. The company sells advertising opportunities on its wide network of signs and digital screens, allowing advertisers to reach consumers in new and exciting ways.

Why do we own it?

There are two major prevailing dynamics in the advertising industry. Firstly, audiences are increasingly fragmented, meaning that advertisers have to find ways to reach small target audiences with relevant adverts, or risk being ignored. Secondly, technology is disrupting traditional media causing major categories like Print and Television to lose audiences, and new categories like Online, Mobile and Out of Home to gain audiences. With the advent of digital screens, Out of Home advertising offers a new dynamic, high-tech media through which to reach consumers. These two powerful industry dynamics should see sustained growth in Out of Home advertising for the foreseeable future.

What does it do?

ARB is Australia’s largest manufacturer and distributor of 4×4 accessories. The company’s key strength is its product leadership, with ARB-branded products enjoying a material price premium to competitors. This has been established through a prolonged R&D focus which has resulted in ARB having the best products. ARB products are distributed through a network of its own stores in Australia, and a network of distributors around the world that sees it export to more than 100 countries.

Why do we own it?

ARB dominates a very specific market niche. This leaves potential competitors little scope to successfully enter its market. The company is run by its founders who have taken a long term view in building the business. This has produced an excellent record of growth, capital allocation and returns. ARB is exiting a high investment phase that has suppressed apparent growth in recent years. It is now positioned to grow sales and profit, particularly from its export markets, without a commensurate need to invest in capacity. Based on supportive trends in its home market, and the probability and potential scale of success in export market, we believe the market under-estimates ARB’s long-term earnings power.

What does it do?

AUB Group operates a general insurance broking network focused on the small to medium-sized business market.

Why do we own it?

We like AUB's owner-driven business model where member firms are strongly incentivised to grow. We believe insurance broking is an industry ripe for consolidation, allowing AUB to be an aggregator of smaller broking firms. The combination of adding more firms to the network, long-term organic growth in the insurance market and the benefits of scale should drive healthy earnings growth for AUB over time.

What does it do?

Brambles is a supply-chain logistics company operating in more than 50 countries. The group specialises in the pooling of unit-load equipment and associated services, focusing on the outsourced management of pallets (CHEP), crates and containers.

Why do we own it?

Although Brambles is a capital intensive business it generates attractive returns on capital. It is difficult for potential competitors to replicate the scale of Brambles' pallet pool (US$5b) and its extensive service centre network. Moreover, there is considerable IP in managing the flow of pallets through the supply chain and keeping control of the assets. We expect sound growth from Brambles for many years to come as the penetration of pooled, rental unit-load equipment continues to increase in developed markets and as modern supply chains are established in emerging markets.

What does it do?

Carsales owns a network of classified advertising websites in Australia. Carsales' main website, www.carsales.com.au, is the leading automotive classifieds website in Australia.

Why do we own it?

A first mover advantage is supremely important in online marketplaces; think of eBay, Amazon or TradeMe. Carsales enjoys the first mover advantage in all its markets, making it very hard for competition to build. In addition, the company is a beneficiary of the shift in spend from traditional media like newspapers to digital media. Carsales is a strong business with attractive growth prospects and interesting global options.

What does it do?

Commonwealth Bank of Australia (CBA) operates a leading banking franchise in both Australia and New Zealand and has a strong presence in all spheres of retail and business banking. CBA has built a very profitable portfolio of assets and positioned itself to benefit from key growth areas in the Australian economy. The bank also enjoys an enviable scale advantage in gathering deposits, allowing it an important source of stable and low-cost funding.

Why do we own it?

The big four Australian banks enjoy a supportive industry structure and wide economic moats. Their scale, regulatory expertise, technology and brands constitute significant barriers to entry for potential competitors, allowing the banks to earn healthy returns on their capital. CBA’s significant share in core Australian lending and deposit gathering should ensure it continues to profit and grow over time.

What does it do?

Credit Corp purchases and then collects, on its own account, portfolios of defaulted debt. These are primarily bought from banks. In more recent times the company has diversified, leveraging its understanding of the sub-prime market to provide consumer credit. It also has a developing US purchased debt ledger (PDL) operation.

Why do we own it?

We like Credit Corp's leading market position and strong reputation with Australia’s major banks, which have allowed it a healthy share of the PDL market. The business enjoys a scale advantage versus competitors, has a conservative balance sheet and is tightly managed. The mature Australian PDL business should deliver sound growth, with the company's burgeoning consumer lending business and US PDL operation providing significant opportunities.

What does it do?

CSL is a leader in the growing global plasma therapies market, with therapies that address severe autoimmune and nerve degeneration conditions.

Why do we own it?

CSL's therapies address conditions for which drug trials are typically difficult to conduct, giving existing companies with approved therapies a tremendous advantage. As a result, CSL enjoys healthy returns on capital and strong earnings growth over very long product lifecycles. In addition to owning several leading therapies, CSL also invests significant resources in research and development, securing future earnings growth.

What does it do?

Domino's Pizza is the master franchisor of the Domino's brand in Australia, New Zealand, France, Belgium, the Netherlands, Monaco and Japan. The company has revolutionised the pizza restaurant industry in its key markets by focussing on meeting consumer taste, convenience and value needs.

Why do we own it?

Dominos is a clear Australian growth stock with store expansion, productivity and margin improvement opportunities. The business has significant scale, technology expertise and a powerful brand, all of which combine to create a formidable barrier to entry for potential competitors. With meaningful contributions from businesses around the world, Dominos offers quality diversification from the Australian economy.

What does it do?

Gateway Lifestyle is Australia's largest manufactured home estate (MHE) operator. MHEs are focused on the affordable end of the retirement living market. Seniors own their manufactured home but pay a ground rental for the site on which it stands. Gateway also generates development profits from the initial sale of manufactured homes to their occupants.

Why do we own it?

Retirement living is an attractive investment space given Australia's ageing population and our expectation of an increasing preference for MHEs among seniors given their affordability. Gateway offers the attractive combination of a growing rental stream from its existing MHEs, a substantial existing development pipeline to meet increasing demand and further acquisition opportunities as it (and Ingenia) consolidates the MHE market.

What does it do?

Ingenia Communities is a retirement living operator focused on the value end of the market. The company primarily operates both rental villages where retireesrent its homes and Manufactured Home Estates (MHE) with relocatable modular housing where Ingenia earns a ground rent from the residents who own the homes themselves. In both cases retirees often receive government assistance towards the rental payment.

Why do we own it?

We see significant organic and acquisitive growth opportunities for Ingenia. The company enjoys the demographic tailwind of aging baby boomers and it has already developed a strong track record in acquiring operating retirement living assets at good prices that come with attached development options. The combination of high free cash yields from rental and MHE villages along with development opportunities will drive solid long-term earnings growth.

What does it do?

Link is the largest provider of fund administration services to Australia's superannuation industry. It is the second largest Australasian share registry and the leading provider of shareholder management and analytics. The company also has registry businesses in a number of other countries.

Why do we own it?

Link has many of the qualities that we look for in a company: the leading market position by a significant margin in outsourced Australian super fund administration; a strong value proposition for its customers; defensive, recurring revenues and a high level of customer captivity. We expect the company to produce solid earnings growth as it integrates an acquisition made in 2014 that doubled the size of its funds administration business. With the scale advantage that Link now enjoys it is well-positioned to participate in further expected consolidation of the fund administration sector.

What does it do?

Why do we own it?

The earnings outlook is attractive given a tremendous tailwind from an ageing population and a strong incentive for the state to shift more of the 90% total medical bill it carries to the private sector. Medibank is a well-recognised brand with a 30% market share and can leverage its scale to negotiate better prices and terms with hospitals and healthcare providers.

What does it do?

Nanosonics has developed an innovative technology for point of use, high-level disinfection. The company's first product to market, the Trophon EPR, is revolutionising disinfection in the sonograph market and is now being distributed globally in partnership with leading companies like GE Healthcare, Toshiba and Miele.

Why do we own it?

Hospitals, medical facilities and healthcare regulators around the world are increasingly focused on preventing infection through more stringent disinfection requirements. With a strong patent portfolio and the first product to market, the Trophon EPR, Nanosonics is well-positioned for healthy future earnings growth.

What does it do?

National Australia Bank (NAB) is one of Australia's "big four" banks. It operates a leading banking franchise in both Australia and New Zealand and has a strong presence in all spheres of retail and business banking. NAB has a formidable stable of brands supporting its top tier position in both deposit gathering and lending.

Why do we own it?

The big four Australian banks enjoy a supportive industry structure and wide economic moats. Their scale, regulatory expertise, technology and brands constitute significant barriers to entry for potential competitors, allowing the banks to earn healthy returns on their capital. NAB has emerged from a restructuring with a relatively strong balance sheet and compelling portfolio of opportunities positioning it well for the future.

What does it do?

Next DC is an Australian data centre business. It currently operates 5 data centres across Australia and has three major new data centre developments underway. Next DC provides only the data centre infrastructure within which its customers can locate their servers. Its unique proposition is to create a valuable ecosystem within its data centres by assembling a community of customers for whom it makes commercial sense to be in close data proximity.

Why do we own it?

Next DC benefits from the strong secular growth trends in cloud computing, data use and connectivity. The Australian cloud services market is forecast to grow three-fold by 2022. Assisted by this tailwind, Next DC’s earnings should multiply as the capacity of its existing data centres becomes fully utilised and as the capacity of its new data centres comes on-stream over the next couple of years.

What does it do?

Ooh! Media is a leading Out of Home advertising company with a dominant share in the Retailing sector. The company sells advertising opportunities on its wide network of signs and digital screens, allowing advertisers to reach consumers in new and exciting ways.

Why do we own it?

There are two major prevailing dynamics in the advertising industry. Firstly, audiences are increasingly fragmented, meaning that advertisers have to find ways to reach small target audiences with relevant adverts, or risk being ignored. Secondly, technology is disrupting traditional media causing major categories like Print and Television to lose audiences, and new categories like Online, Mobile and Out of Home to gain audiences. With the advent of digital screens, Out of Home advertising offers a new dynamic, high-tech media through which to reach consumers. These two powerful industry dynamics should see sustained growth in Out of Home advertising for the foreseeable future.

What does it do?

Ramsay Healthcare is Australia's leading hospital operator. It has hospitals and day surgery facilities across Australia, the United Kingdom, France, Indonesia and Malaysia. Ramsay has an exceptional record, growing revenue and earnings at an annual rate of more than 20% over the last ten years.

Why do we own it?

Ramsay benefits from the increasing health demands of an aging population. This organic growth is supplemented by an attractive pipeline of development opportunities in Australia, France and Indonesia. In Australia, Ramsay can quickly generate profits on new investments because most of its growth comes from adding capacity at existing hospitals. In France, Ramsay has established the country’s largest private hospital group and has scope to achieve substantial cost efficiencies. Ramsay is a strong Australian company going global.

What does it do?

ResMed is a global leader in the treatment of sleep disordered breathing conditions like obstructive sleep apnea. The company provides a range of treatment options for patients with these conditions including CPAP flow generators and consumables. The firm is a global leader in what is an oligopoly market with competitors Respironics and New Zealand’s Fisher & Paykel Healthcare.

Why do we own it?

ResMed benefits from an aging and fattening population and increasing awareness and treatment of sleep disordered breathing. The company has posted solid profit growth over a number of years leveraging heavy ongoing investment in research and development (R&D). This R&D investment provides a strong intellectual property advantage from which long-run earnings growth should follow. The company is highly cash generative, has net cash on the balance sheet and is led by a capable and experienced management team.

What does it do?

SEEK is the largest global online employment marketplace. Operating across Australia, New Zealand, South East Asia, China, Brazil, Mexico, Bangladesh and Africa,. SEEK's employment marketplaces are exposed to approximately 2.6 billion people and more than 20% of global GDP.

Why do we own it?

In Australia and New Zealand SEEK has a strong competitive position by virtue of being "front of mind" for job seekers. It will continue to benefit from the migration of employment advertising from traditional media to online. Domestically, successful development of its talent search platform would provide a high value new revenue stream while its international investments give SEEK exposure to faster growing, less mature employment markets.

What does it do?

Sonic Healthcare is a leading global provider of medical diagnostic services. It is a global leader in pathology testing, and a significant player in the Australian diagnostic imaging market.

Why do we own it?

The combination of an ageing population, an increasing focus on preventative medicine and more effective diagnostic tests drives Sonic's substantial long-term growth opportunity. Regulated medical prices are typically set to allow small independent companies to make a reasonable profit, which allows Sonic to achieve significant additional profitability from its substantial scale.

What does it do?

Technology One is one of Australia’s largest enterprise software companies. It is focused on the government, financial services, education, healthcare and utilities sectors. The company develops, markets, sells, implements and supports its own integrated enterprise software.

Why do we own it?

Technology One has a strong historical track record of sales and profit growth. The company is deeply integrated into its customers' operations and is at the forefront of technology innovation in its niches. With a strong commitment to research and development driving constant product innovation, we see Technology One as well-positioned for long-term growth, particularly as it migrates existing customers to its cloud platform.

What does it do?

Toxfree Solutions provides waste management and environmental services throughout Australia. The company specialises in the treatment of industrial and hazardous waste, and the provision of industrial cleaning services.

Why do we own it?

The waste sector has particularly high barriers to entry as a result of: (i) tight regulation; (ii) difficulties in obtaining licences to establish new waste facilities; and (iii) the need for exemplary safety practices to gain contracts from large resources and industrial customers. Consequently, Toxfree has assets that are very hard to replicate and which should benefit from growing waste streams as the Australian economy expands.

What does it do?

Virtus Health is the largest assisted reproductive technology firm in Australia, and enjoys a significant international presence. The company provides fertility treatments to women wanting to fall pregnant.

Why do we own it?

Virtus Health are recognised for their high success rates in helping women fall pregnant. The company recruits the best fertility specialists and has developed leading fertility treatments and difficult to replicate laboratory infrastructure. As the industry leader, Virtus is expected to continue growing patient numbers as women delay pregnancy until later in life. On average today every Australian classroom has a child conceived using fertility treatment, a number expected to grow as the therapy becomes more common over time.

What does it do?

Westpac is Australia's oldest bank and corporation. It operates a leading banking franchise in both Australia and New Zealand and has a strong presence in all spheres of retail and business banking. Westpac has a formidable stable of brands supporting its top tier position in both deposit gathering and lending.

Why do we own it?

The big four Australian banks enjoy a supportive industry structure and wide economic moats. Their scale, regulatory expertise, technology and brands constitute significant barriers to entry for potential competitors, allowing the banks to earn healthy returns on their capital. Westpac's significant share in core Australian lending and deposit gathering should ensure it continues to profit and grow over time.

What does it do?

WiseTech Global is a logistics software business with a presence in key global regions and key global customers. Their main product, Cargowise One, offers clients a complete suite of logistics services and general business solutions. An early lead in the freight forwarding software domain confers a key technology moat, increases customer switching costs and establishes a nascent network benefit to participants using its technology.

Why do we own it?

While increasing trade flows are supportive, customers need better technology to help them manage greater supply chain complexity, comply with more onerous regulation and address vociferous competition. WiseTech is an early leader in an industry with low penetration of a clear internet-based technology solution, making for significant growth prospects should the company retain its leading position in the sphere.